The Sun Stocks Also Set

The laws of gravity do seem to apply to solar stocks, after all. After remaining one of the few sectors that was immune from the spreading turmoil and carnage caused by the credit crunch, an overwhelming wave of sell orders seemed to have swept aside the relentless bullishness that drove many of these stocks higher and higher.

But rather than originating in the mortgage mess — or even the sudden, sharp correction in big-name technology stocks that spilled over from the finance sector — the broadside in solar stocks came from a longtime ally: U.S. legislators who have suddenly become wishy-washy concerning bills that could benefit alternative technologies like solar panels. As Craig wrote earlier, the rush to pass pending legislation could leave some energy bills gutted with hoped-for provisions:

Or even, for now at least, some rather stellar stock losses. Even the larger-cap issues favored by investors who have been enthusiastic with solar stocks this year fell between 10 percent and 20 percent, as this table from Yahoo Finance shows.

Stars like Yingli Green Energy (YGE), Evergreen Solar (ESLR), SunPower (SPWR) and JA Solar (JASO) retreated from recent rallies, while others like Trina Solar (TSL) and Solarfun (SOLF), which have been trading sideways, made a similar plunge. Only a few, such as Hoku Scientific (HOKU), managed to fall less than 10 percent on Monday.

How serious are these declines? Well, for a company like First Solar, it’s hardly serious at all — little more than correction, in fact. First Solar was up 24 percent between Tuesday and Friday of last week. After its 14 percent fall Monday, it’s still yet to give up all of the ground that it’s gained.

Looking at the charts of some of the other solar stars, it appears this may be little more than a simple correction — people trying to lock in profits they made after buying the stocks days or even weeks ago.

Here’s the more bullish case: First, a 15 percent drop in a stock is a little less scary when the price has doubled in the past few months than when it has been flat or falling.

Second, let’s say these alt-energy provisions in the bills are omitted; the lobbying and the negative press that would generate at a time when oil is near $100 a barrel would make them more likely to be passed in the near future.

Third, it’s not clear that all of these stocks will be hurt, considering that many have revenues coming from outside the United States.

Now the more bearish case: First, some of these stocks were dropping last Friday or even before (to see a larger image of the stock chart at the top of this page, click on the image.) That suggests there was some appetite for selling even before the news of the energy bills hit the media.

Second, some of these stocks have been overvalued for quite some time. If a relatively minor threat can suck a tenth to a fifth of their value out in a day, that suggests a lot of investors are playing these stocks as speculation rather than innovation.

In that case, it becomes very hard to guess what will happen next. Speculative rallies often see correction after correction, each one allowing the buying to resume with even greater gusto. Eventually, of course, the rallies stop.